In view of the changes that are happening in Indonesia at the

In view of the changes that are happening in Indonesia at the moment -- the country's movement from an autocratic government to one that is more democratic, the change from a very centralized system to a decentralized one - and the fact that the country is still trying to recover from the conomic crisis, we don't expect all these things will change overnight but realize they will take some time to work through. Meanwhile, if you look at the mining industry itself, and the part of the mining industry that Rio Tinto participates in -- large-scale mining - there are some particular characteristics. For one, it's a high-risk industry, and it requires investment for a long time in advance before you get your return. For mining investors, it's very difficult to make investment decisions in Indonesia when there are a lot of changes and uncertainty. One way to address this is to have a strong regulatory environment. However, if we look at the regulatory framework, we've got the forestry law since 1999, which bans open-pit mining in protected forests, and not the mining law, which is still in process. The problem is not just the laws. Since the implementation of the autonomy law in 2001, the provinces and regencies have been issuing a number of rulings, which frequently conflict with the government's regulations or are contrary to the terms we agreed upon in the contracts of works. Finally, investors have no confidence in the court system. Honestly speaking, the government has made progress in some areas, including in stabilizing the macro economy and in constitutional changes to allow more democratic political system. Yes, the government has made progress in dealing with big issues, but the challenges for the mining industry still remain to be addressed. With regard to the forestry law, it's up to Indonesia to decide what mining regime it wishes to have in place. But the country can't change fundamental economics. If the country says we don't want open-pit mining, in many cases the cost of the coal produced by the country's mines will be much higher and the mines will not be able to compete economically with those in other countries that allow open-pit mining. So if Indonesia decides to only allow underground mining, the consequence is some mines will no longer be economically feasible and will be closed. The other side is that if you have no open-pit mining in the domestic environment, you will probably have to pay more for coal. Subsequently, you will have to pay more for power and cement. As a mining company, we are happy to operate in whatever mining regime the country establishes. We will operate open-pit mines to world-class environmental standards, and we can minimize the environmental damage by conducting rehabilitation to the standard that is acceptable to the local communities. But if the country says no to open-pit mines, we have to make a decision whether to invest or not. In some cases, we probably would not proceed. We always respect the law of the country that we operate in, including the forestry law of 1999. As a result of that, we will no longer conduct exploration in the protected forest areas. But, my concern is that when the law was passed, quite a few companies had been awarded contracts within the areas subsequently designated protected forest areas. What I believe should have happened was that in drafting that law, someone should have made a provision on transitional arrangements for contracts that were in place. I think it would have been more helpful had there been such an arrangement to respect the rights of investors. That would have been helpful in maintaining confidence in investment in Indonesia.

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